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8-K/A - AMENDMENT TO FORM 8-K - Ascent Capital Group, Inc.a13-20906_18ka.htm
EX-99.5 - EX-99.5 - Ascent Capital Group, Inc.a13-20906_1ex99d5.htm

Exhibit 99.4

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed consolidated financial statements have been prepared from the historical financial statements of Ascent Capital Group, Inc. (“Ascent” or the “Company”) and Security Networks, LLC (“Security Networks”) to give effect to the acquisition of Security Networks and certain affiliated entities (the “Acquisition”) by the Company’s wholly-owned operating subsidiary, Monitronics International, Inc. (“Monitronics”).  The unaudited pro forma condensed consolidated financial statements also give effect to the following financing transactions which were entered into to fund the Acquisition (these financing transactions, together with the Acquisition, are collectively referred to as the “Transactions”):

 

·                  Ascent’s July issuance of $103.5 million of 4% Senior Convertible Notes due 2020;

·                  Ascent’s July concurrent but separately negotiated hedge transactions (the “Bond Hedge Transactions) and warrant transactions (the “Warrant Transactions”) as described in more detail in Ascent’s Current Report on Form 8-K filed on July 17, 2013 with the Securities and Exchange Commission (the “July 17, 2013 8-K”);

·                  Monitronics’ July issuance of $150 million of additional 9.125% Senior Notes (“New Senior Notes”) due 2020 (in connection with the merger of Monitronics with Monitronics Escrow Corporation on August 16, 2013, as described in more detail in Ascent’s July 17, 2013 8-K); and

·                  Monitronics’ Incremental Term Loan of $225 million issued under Monitronics’ existing credit facility.

 

The unaudited pro forma condensed statements of operations for the fiscal year ended December 31, 2012 and for the six months ended June 30, 2013 give effect to the Transactions as if they were consummated on January 1, 2012.  The unaudited pro forma condensed balance sheet as of June 30, 2013 gives effect to the Transactions as if they were consummated on June 30, 2013.  The unaudited pro forma consolidated information has been derived from (i) the audited consolidated financial statements of each of Security Networks and the Company for the year ended December 31, 2012 and (ii) the unaudited consolidated financial statements of each of Security Networks and the Company as of and for the three and six months ended June 30, 2013 incorporated by reference herein.

 

The unaudited pro forma consolidated financial information has been presented for informational purposes only and does not purport to represent, and is not necessarily indicative of, what our financial position or results of operations would have been had the Transactions been completed as of January 1, 2012 and June 30, 2013, as applicable, and should not be taken as representative of our future consolidated financial position or results of operations.  This information is only a summary and should be read in conjunction with the accompanying notes to the unaudited pro forma condensed consolidated financial statements and our historical consolidated financial statements and related notes thereto and Security Networks’ historical consolidated financial statements and related notes thereto incorporated by reference herein .

 

The Acquisition will be accounted for as a business combination utilizing the purchase accounting method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations.  The pro forma information presented below, including the purchase price and allocation of purchase price, is based on estimates of the fair values of assets acquired and liabilities assumed, available information as of the date of this report and management assumptions, and may be revised as additional information becomes available.  The final purchase price and purchase price allocation is dependent upon, among other things, the finalization of the asset and liability valuations by our independent appraisal firm.  Any post-closing adjustments may change the purchase price or the allocation of the purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited pro forma condensed consolidated financial information, including a change to goodwill.  The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 has been revised from the preliminary pro forma financial information included in previous filings due to changes in estimates associated with the allocation of purchase price.

 

The historical consolidated financial information has been adjusted to give effect to pro forma events that are (a) directly attributable to the Transactions, (b) factually supportable, and (c) with respect to the statements of income, expected to have a continuing impact on the combined results.

 



 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2013
(Amounts in thousands)

 

 

 

Ascent

 

Security Networks

 

Pro Forma
Adjustments

 

Pro Forma

Condensed
Consolidated Ascent
and Security
Networks

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

84,149

 

1,886

 

(24,799

)(1)

61,236

 

Restricted cash

 

2,640

 

 

 

2,640

 

Marketable Securities, at fair value

 

141,438

 

 

 

141,438

 

Trade Receivable, net of allowance for doubtful accounts

 

12,114

 

1,636

 

 

13,750

 

Parts inventory

 

 

477

 

 

477

 

Deferred income tax assets, net

 

3,780

 

 

 

3,780

 

Income taxes receivable

 

49

 

 

 

49

 

Prepaid and other current assets

 

12,595

 

704

 

250

(7)

13,549

 

Assets held for sale

 

6,119

 

 

 

6,119

 

Total current assets

 

262,884

 

4,703

 

(24,549

)

243,038

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

54,743

 

2,104

 

(700

)(2)

56,147

 

Subscriber accounts, net of accumulated amortization

 

1,020,664

 

239,651

 

68,049

(3)

1,328,364

 

Dealer network and other intangible assets, net of accumulated amortization

 

24,813

 

 

48,500

(3)

73,313

 

Goodwill

 

349,227

 

54,629

 

119,095

(4)

522,951

 

Other assets, net

 

25,410

 

8,457

 

705

(5)

34,572

 

Assets of discontinued operations

 

54

 

 

 

54

 

Total assets

 

$

1,737,795

 

309,544

 

211,100

 

2,258,439

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholder’s Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,398

 

1,645

 

3,528

(6)

10,571

 

Accrued payroll and related liabilities

 

3,372

 

513

 

 

3,885

 

Other accrued liabilities

 

28,217

 

4,107

 

5,173

(7)

37,497

 

Deferred revenue

 

9,704

 

3,778

 

(2,569

)(8)

10,913

 

Purchase holdbacks, including amounts due on acquired contracts — short-term

 

15,725

 

2,681

 

 

18,406

 

Current portion of long-term debt

 

6,905

 

 

 

6,905

 

Liabilities of discontinued operations

 

6,907

 

 

 

6,907

 

Total current liabilities

 

76,228

 

12,724

 

6,132

 

95,084

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,119,201

 

237,972

 

200,068

(9)

1,557,241

 

Derivative financial instruments

 

2,663

 

 

 

2,663

 

Deferred income tax liability, net

 

8,346

 

 

 

8,346

 

Due on acquired contracts — long-term

 

 

6,552

 

 

6,552

 

Other liabilities

 

5,463

 

 

13,097

(6)

18,560

 

Total liabilities

 

1,211,901

 

257,248

 

219,297

 

1,688,446

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholder’s equity

 

525,894

 

52,296

 

(8,197

)(10)

569,993

 

Total liabilities and stockholder’s equity

 

$

1,737,795

 

309,544

 

211,100

 

2,258,439

 

 

See accompanying notes to the condensed consolidated financial statements.

 



 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2013
(Amounts in thousands)

 

 

 

Ascent

 

Security Networks

 

Pro Forma
Adjustments

 

Pro Forma Condensed
Consolidated Ascent
and Security Networks

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

202,431

 

48,407

 

 

250,838

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of Services

 

30,796

 

7,747

 

 

38,543

 

Selling, general, and administrative

 

41,246

 

14,612

 

(1,493

)(6)

54,365

 

Amortization of subscriber accounts, dealer network and other intangible assets

 

90,313

 

15,013

 

11,327

(3)

116,653

 

Depreciation

 

4,055

 

621

 

(621

)(2)

4,055

 

Loss (gain) on sale of operating assets, net

 

(5,456

)

28

 

 

(5,428

)

 

 

160,954

 

38,021

 

9,213

 

208,188

 

Operating income (loss)

 

41,477

 

10,386

 

(9,213

)

42,650

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

1,907

 

 

 

1,907

 

Interest expense

 

(40,628

)

(10,010

)

(6,274

)(9)

(56,912

)

Other income (expense), net

 

1,458

 

 

 

1,458

 

 

 

(37,263

)

(10,010

)

(6,274

)

(53,547

)

Income (loss) from continuing operations before income taxes

 

4,214

 

376

 

(15,487

)

(10,897

)

Income tax expense from continuing operations

 

(1,688

)

(161

)

 

(1,849

)

Net income (loss) from continuing operations

 

$

2,526

 

215

 

(15,487

)

(12,746

)

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.18

 

 

 

 

 

(0.90

)

Weighted average shares — basic

 

13,890,801

 

 

 

 

 

14,144,134

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.17

 

 

 

 

 

(0.90

)(11)

Weighted average shares — diluted

 

14,646,379

 

 

 

 

 

14,144,134

(12)

 

See accompanying notes to the condensed consolidated financial statements.

 



 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2012

(Amounts in thousands)

 

 

 

Ascent

 

Security
Networks

 

Pro Forma
Adjustments

 

Pro Forma
Condensed
Consolidated
Ascent and Security
Networks

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

$

344,953

 

78,478

 

(2,569

)(8)

420,862

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of Services

 

49,791

 

12,262

 

 

62,053

 

Selling, general, and administrative

 

73,389

 

20,134

 

(1,829

)(6)

91,694

 

Amortization of subscriber accounts, dealer network, and other intangible assets

 

163,468

 

24,470

 

36,880

(3)

224,818

 

Depreciation

 

8,404

 

1,138

 

266

(2)

9,808

 

Loss (gain) on sale of operating assets, net

 

(8,670

)

 

 

(8,670

)

Loss on pension plan settlements

 

6,571

 

 

 

6,571

 

Impairment of assets held for sale

 

1,692

 

 

 

1,692

 

Contingent consideration expense

 

 

982

 

 

982

 

 

 

294,645

 

58,986

 

35,317

 

388,948

 

Operating income (loss)

 

50,308

 

19,492

 

(37,886

)

31,914

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

4,011

 

 

 

4,011

 

Interest expense

 

(71,390

)

(15,816

)

(16,486

)(9)

(103,692

)

Realized and unrealized loss on derivative instruments

 

(2,044

)

 

 

(2,044

)

Refinancing expense

 

(6,245

)

 

 

(6,245

)

Other income, net

 

3,696

 

 

 

3,696

 

 

 

(71,972

)

(15,816

)

(16,486

)

(104,274

)

Income (loss) from continuing operations before income taxes

 

(21,664

)

3,676

 

(54,372

)

(72,360

)

Income tax expense from continuing operations

 

(2,591

)

(100

)

 

(2,691

)

Net income (loss) from continuing operations

 

$

(24,255

)

3,576

 

(54,372

)

(75,051

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.73

)

 

 

 

 

(5.26

)

Weighted average shares — basic and diluted

 

14,026,102

 

 

 

 

 

14,279,435

(12)

 

See accompanying notes to the condensed consolidated financial statements.

 



 

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

 


(1)                     Reflects net cash contributed to fund the Acquisition and other cash payments, including deferred financing and convertible note hedge costs, net of proceeds from the sale of warrants, and the repayment of $33.6 million of the revolving portion of the Monitronics’ Credit Facility outstanding as of June 30, 2013.

 

(2)                     Reflects fair value adjustments and pro forma depreciation expense adjustments for the acquisition of Security Networks’ property and equipment.

 

(3)                     Reflects fair value adjustments and pro forma amortization expense adjustments for the acquisition of Security Networks’ identifiable intangible assets, which are comprised of subscriber accounts, its dealer network and non-compete agreements.  Subscriber accounts are amortized using the 14-year 235% declining balance method.  Dealer network and non-compete agreements are amortized over their estimated remaining useful lives of 5 years on a straight-line basis.

 

(4)                     Reflects the elimination of Security Networks’ historical goodwill balance of $54.6 million and the origination of goodwill arising from Monitronics’ purchase of Security Networks.  Adjusted goodwill reflects the preliminary estimated excess of purchase price over the fair value of assets acquired and liabilities assumed.  The purchase price of Security Networks consisted of $482.9 million of cash and 253,333 shares of Ascent Series A common stock and has been allocated on a preliminary basis as follows (amounts in thousands):

 

Estimated fair value of assets acquired and liabilities assumed:

 

 

 

Subscriber accounts

 

$

307,700

 

Dealer network and other intangible assets

 

48,500

 

Property and equipment

 

1,404

 

Other assets acquired

 

4,953

 

Goodwill

 

173,724

 

Estimated fair value of liabilities assumed

 

(33,803

)

 

 

 

 

Fair value of consideration

 

$

502,478

 

 

(5)                     Reflects the additional deferred financing costs incurred on incremental debt obtained to finance the Acquisition, net of the elimination of Security Networks deferred financing costs not acquired and other fair value adjustments.

 

(6)                     Reflects fair value adjustments related to Security Networks revenue sharing program and elimination of historical revenue sharing expenses.

 

(7)                     Reflects accrued liabilities recognized in connection with the issuance the of the New Senior Notes and other purchase accounting adjustments, net of the elimination of Security Networks accrued interest that was paid off as of the closing date of the Acquisition.

 

(8)                     Represents purchase accounting adjustments related to Security Networks’ deferred revenues.

 

(9)                     Reflects incremental debt obtained to finance the Acquisition, net of the elimination of Security Networks debt not assumed.  The adjustments include consideration of FASB ASC Topic 470-20, Debt with Conversion and Other Options, which requires the liability and equity component of convertible debt instruments to be accounted for separately.  The statement of operations adjustments are to record pro forma interest expense on these incremental borrowings.  Pro forma interest expense adjustments were calculated based on the weighted effective interest rate on incremental debt in connection with the Acquisition, including amortization costs of debt discounts and deferred financing costs.

 

(10)              Reflects the elimination of Security Networks historical stockholder’s equity, the recognition of the equity component of the convertible debt instrument, the net impact of entering into the convertible note hedge and warrant equity contracts, and the issuance of 253,333 shares of Ascent Series A common stock as consideration paid for the Acquisition.

 

(11)              Pro forma diluted earnings per share for the six months ended June 30, 2013, is calculated the same as pro forma basic EPS since the pro forma results in a net loss, which would make potentially dilutive securities antidilutive.

 

(12)              Pro forma basic and diluted weighted average shares reflects an adjustment for the issuance of 253,333 shares of Ascent Series A common stock as consideration paid for the Acquisition.